LAW OF CONTRACTS I NOTES

– ADV. ARUSHI CHAUHAN (2024)

[These notes are to be read along with the bare act of Indian Contract Act, 1872,
Class notes and PPT for better understanding and clarity of concepts.]
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Law of contract is a peculiar branch of substantive law. It does not enumerate rights and duties. It
provides circumstances in which a promise made by a person is legally binding on the promisor.
The Contract Law by itself does not create rights and duties between the parties. The parties
themselves create rights and duties and the law enforces those. It provides circumstances when
rights and duties will be binding on parties. The parties enjoy freedom of choosing terms
advantageous to their interest while entering into a contract. This is called freedom of contract.
But this freedom is not absolute. This freedom only provides for equality of bargaining power
between the contracting parties. There is no such freedom if injury is done to the interests of the
community at large.

Intention to create legal relations

D: For a contract to conclude, there must be an animus contrahendi, i.e., an intention to contract.
A promise is not a contract without an intention of creating legal relations even though supported
by consideration. A contract is created by common intention of the parties to enter into legal
obligations. The test of intention to create legal relations is an objective test. True construction of
the agreement has to be done to infer the intention of the parties. The onus of proving that there
was no intention to create legal relations is on the party disputing such intention. However,
intention of the parties can be negated in certain arrangements:
1.​ Domestic arrangements
2.​ Social arrangements
3.​ Profession and Commercial arrangements

1.​ Domestic arrangements

Balfour v Balfour (1919)
Balfour v Balfour - Mr. Balfour and his wife went to England for vacation. During their
vacation, his wife became ill and needed medical attention for the same. They made an
agreement that Mrs. Balfour would remain in England and that Mr. Balfour would go
back to Ceylon and would pay £30 to her every month until he returned. The particular
agreement was made when their relationship was fine. Later, their relationship got sour
and her husband stopped sending her money. Mrs. Balfour sought to enforce this

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agreement. Later, they both got separated and were divorced. The wife sued Mr. Balfour
that he had promised to pay her money but failed to do so.
Held: Social agreements made between members of the family or other personal
relationships will not be enforced in a court of law. It also emphasized the importance of
creating legal relationships for a contract to be enforced.

Merritt v Merritt (1970)

Mr. Merritt and his wife jointly owned a house and then Mr. Merritt left to live with another
woman. The couple separated and an agreement was reached, written down and signed, that Mr.
Merritt would pay Mrs. Merritt 40 pounds a month. The agreement also stated that eventually
Mr. Merritt will transfer the house to Mrs. Merritt. In this case, Mr. Merritt was held liable.

2.​ Social arrangements

X Coward v Motor Insurers Bureau (1962)
In this case, an arrangement was made between the owner of the vehicle and the coworker that
he would carry the coworker to the place of their work and back for a weekly sum. This was held
to be not binding as none of the parties intended to create legal relations.

3.​ Profession and Commercial arrangements

Rose and Frank v JR Crompton (1924)
Two partnership firms entered into a written agreement for sale and purchase of tissue paper.
Their agreement contained a clause that this agreement is not formal or legal document, and shall
not be subject to legal jurisdiction in law courts. This was held to be not binding (no contract) as
there was no intention to create legal relations.

Objective Test of Intention

The court will form an opinion on the basis of what a reasonable person would think, the type of
circumstances at the time, and the intention of the parties. The court does not try to discover the
intention by looking into the minds of the parties. It looks at the situation in which they were
placed and asks itself: Would reasonable people regard this agreement as intended to be legally
binding?

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In certain situations of family/ social arrangements, there is a rebuttable presumption that no

legal relations is intended. – “… as a rule, when arrangements are made between close relations,
for example, between husband and wife, parent and child or uncle and nephew in relation to an
allowance, there is a presumption against an intention of creating any legal relationship. This is
not a presumption of law, but of fact. It derives from experience of life and human nature which
shows that in such circumstances men and women usually do not intend to create legal rights and
obligations, but intend to rely solely on family ties of mutual trust and affection. […] There may,
however, be circumstances in which this presumption, like all other presumptions of fact, can be
rebutted.

Jones v Padavatton (1969)

Facts: A mother and daughter came to an arrangement whereby the mother agreed to maintain
her daughter if she would give up her employment in the US and move to England with her
family to prepare for the bar exam.The daughter commenced her studies and the mother paid her
an allowance. The arrangement was later altered and the mother agreed to provide a house in
which her daughter could reside whilst she studied. The parties’ relationship soured over the fact
that the defendant had not completed her studies in five years. Mother sought possession of the
house. The defendant argued that she was entitled to stay and continue to receive the £42 a
month. This was because, she claimed, a binding contract had arisen between her and her mother.
The claimant (mother) responded that she had never intended to be legally bound by the
arrangement, so there was no contract.
Held: The court held in favour of the mother (claimant). There is a presumption that family
arrangements are based on mutual trust, family ties and affection, and that there is no intention
to create legally binding contracts capable of enforcement in the courts. This presumption can
be rebutted, but the lack of formality regarding the agreement between mother and daughter
strongly indicated there was no such intention and the daughter had no defence to her mother’s
claim for the house.

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2 (a) Proposal/ Offer​

●​ Proposal must be within the knowledge of the other person.

Lalman Shukla v Gauri Dutt (1913 Allahabad HC)

Facts: In this case, the defendant Gauri Dutt’s Nephew had absconded and was nowhere
to be found. After the defendant became aware of the same, Dutt had sent all the servants
in search of the missing nephew. The plaintiff Lalman Shukla was one of the servants
who had gone out in search of the nephew. The plaintiff eventually found him and
brought him back.
When Lalman Shukla had left the house to leave for Haridwar from Kanpur he was
handed some money for his railway fare and other expenses. As soon as Lalman Shukla
had left the house, the defendant announced a reward of Rs. 501 for whosoever found
Dutt’s nephew. Shukla had no idea that such an announcement was made. The plaintiff
found the missing nephew and brought him back to his home in Kanpur.
The plaintiff claimed the money from the defendant and the latter denied to pay the said
remuneration. As a result the plaintiff Lalman Shukla filed a case against Gauri Dutt, his
master, for not rewarding him as he was entitled to.
Held: In this case, the servants had gone to look after the nephew in compliance with
their duties. The master had announced a reward after the servants had already gone to
look for the nephew. Therefore, these servants had not gone to look for the nephew in
furtherance of any proposal. Hence, no question of acceptance arose. Therefore, the
master was not held liable to pay the reward money to the servant.

●​ Mere supply of information does not amount to proposal/ acceptance

Harvey v Facey (1893) (Bumper Hall Pen Case)
Facts: There was a property (BHP) situated in Jamaica. Harvey asked Facey, will you sell us
Bumper Hall Pen? Telegraph lowest cash price. Facey replied, the lowest price of BHP is 900
pounds. Harvey replied, we agree to buy BHP at 900 pounds as asked by you?.
Held: Facey had merely supplied information which does not amount to any proposal and
acceptance. Hence, no contract was concluded.

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●​ Proposal once rejected comes to an end.

Hyde v Wrench (1840)
Facts: The defendant offered to sell his estate for 1200 pounds. The plaintiff declined the offer.
The defendant then offered to sell for 1000 pounds. The plaintiff then offered to purchase for 950
pounds. The defendant said that he will consider and give an answer in 2 weeks. After this, the
defendant declined the proposal. Now, the plaintiff said that he accepts the earlier offer of 1000
pounds.
Held: By making a counter proposal of 950 pounds, the defendant’s proposal of 1000 pounds had
come to an end. Therefore, a proposal once rejected comes to an end.

Counter Proposal
According to section 7(1), acceptance must be absolute and unqualified. This means that the
offer and acceptance should correspond to each other. Mulla calls this a mirror rule. If the
acceptance is not so, it is no acceptance in the eyes of law, rather it will be a counter proposal.
Counter proposal amounts to rejection of the original proposal by giving a fresh proposal.

Cross Proposals
Requirements:
1.​ Same parties
2.​ Same subject matter
3.​ Same terms
4.​ Time of communication is such that one crosses the other

Do cross proposals make a contract?

No. acceptance is mandatory for contracts. Mere proposals do not make a contract unless
accepted. Cross proposals are two simultaneous proposals made by the parties to each other.
These cannot be regarded as an acceptance of the other. One of such cross proposals needs to be
accepted to constitute a contract.

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Cross Proposal Counter Proposal

Terms are same Terms are different

Cross proposals do not exhaust each other, The original proposal comes to an end.
they are two independent proposals.

Invitation to proposal
Whether something will be a proposal or invitation to proposal, depends on the intention of the
person making it.

Pharmaceutical Society of Great Britain v Boots Cash Chemists (1952)

Facts: A customer selected a drug from the shelf and brought it to the cash counter. However, the
person at the cash counter refused to sell the drug as there was no prescription.
Held: It was held that the display of the drugs was only an invitation to offer. No sale was
complete until the customer’s offer was accepted. Therefore, the defendant was not held liable in
this case.

Differences between proposal and Invitation to proposal

Proposal Invitation to Proposal

As per section 2(a), a proposal is when one Here no willingness is signified. It is merely a
person signifies willingness to do or not to do supply of information.
something.

Proposal is a part of the agreement. ITP is not a part of the agreement.

The object of proposal is to obtain the assent The object of ITP is to obtain proposal
of other

Here, the burden of acceptance lies on the Here, burden of acceptance lies on the person
person to whom it is made who has made invitation to proposal

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Tenders
Certain requisites of a valid tender:
●​ It must be unconditional
●​ It must be made at a proper place and to proper person
●​ It must confirm to the terms of obligation
●​ It must be made at proper time
●​ It must be made in the proper form
●​ The person by whom the tender is made must be able and willing to perform his
obligations.
●​ There must be reasonable opportunity for inspection

Standing Offer - A standing offer is a continuing offer which is accepted from time to time.

Specific proposal
Is one which is made to a specific person or a specific group of persons.

General Proposal
It is made to the world at large. General proposals are made to all the people in the world. It is
uncertain as to whom the general proposal has been made. In case of general proposals, the
power of acceptance vests in every person to whom it is made or becomes known.

How is a general proposal accepted?

According to section 2(b), acceptance must be signified to the proposer. This is the general rule.
However, in the case of general proposals, signifying acceptance by the world at large is
practically impossible. In such cases, section 8 provides that acceptance can be through the
performance of conditions of the proposal. This is called ‘acceptance by conduct’.
So, in case of general proposals, performing the conditions of the proposal amounts to
acceptance of the proposals thereby concluding a contract.
Section 8 does not dispense with the requirement of communication of acceptance as provided in
section 2(b). Section 8 only recognises the fact that it is sometimes impossible for the acceptor to

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communicate acceptance otherwise than by performance of part of his contract. -Lalman Shukla
v Gauri Dutt (1913).

Carlill v Carbolic Smoke Ball (1893)

Facts: The defendant company had come up with a medicine for influenza called carbolic smoke
ball. Company issued an advertisement stating that the company will pay 100 pounds to any
person who catches influenza after taking the medicine thrice a day for two weeks. Mrs. Carlill
took the medicine as per directions and still caught influenza. When Mrs Carlill sued the
company for 100 pounds, the company had taken defence that there was no offer from the
company, but only an invitation to offer.
Held: It was held that the advertisement from the company was not an invitation but was a
general offer which was to ripen into a contract with anyone who comes forward and performs
the conditions. Hence the company was liable to pay 100 pounds to Mrs. Carlill.

Acceptance
➔​ According to Anson, an offer need not be made to an ascertained person, but no contract
can arise until it has been accepted by an ascertained person.
➔​ The proposal and acceptance must correspond [section 7(1)]
According to section 7(1), acceptance must be absolute and unqualified, i.e., the offer and
acceptance must correspond. This is called the mirror rule.
The intention of the acceptor to accept must be expressed with certainty.

Since acceptance must be absolute, a provisional acceptance is nothing in the eyes of law.
A provisional acceptance is when the acceptance would be complete subsequently upon
some confirmation, approval or fulfillment of conditions. Such type of acceptance is not a
valid acceptance to result into a concluded contract. (Like yes I agree but let me ask my
wife. The offeror is not bound by such provisional acceptance).

Some points on acceptance:

➔​ An acceptance is a final and unqualified assent to the terms of the proposal
➔​ The assent may be expressed or implied.

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➔​ Acceptance must be signified to the proposer

➔​ According to Anson, “acceptance is to an offer what a lighted match is to a train of
gunpowder. It produces something which cannot be recalled to undone.”
➔​ Acceptance can be made by the person to whom the proposal was made
➔​ A specific proposal can be accepted only by the person to whom it is made. In case of a
general proposal, any one can accept it.
➔​ Acceptance must be communicated through authorised person
Powell v Lee (1908)
Facts: Powell applied for the post of headmaster of a school. The Board of Managers of
School passed a resolution appointing him. They did not officially communicate this to
Powell. One manager, in his individual capacity, told Powell that he had been appointed.
Later, some other person was appointed. Powell sued the Chairman of The Board of
Managers. He did not succeed as no authorized acceptance was signified.

➔​ Acceptance must be signified​

In the Indian law, the proposer can prescribe a particular manner in which a proposal can
be accepted. The acceptor must accept in the prescribed manner for a valid acceptance.
However, if the acceptor does not send the acceptance in the prescribed manner, the
acceptance is still valid unless the proposer intimates to the acceptor that he does not
accept the acceptance.
The English law is stricter with respect to the manner of acceptance. Any mode other
than prescribed by the offeror would not amount to an acceptance, rather would amount
to a counter offer. A contract will conclude only when this counter offer is accepted by
the offeror.

●​ Acceptance of an offer can be implied through the conduct of the parties​

Brogden v Metropolitan Railway Company (1877)​
Facts: Brodgen had supplied Metropolitan Railway Company with coal for many years
without any formal contract. Eventually, Brogden suggested that the parties draw up a
formal contract. Metropolitan drew up a draft agreement, leaving certain parts blank for
Brogden to fill in. Brodgen filled in the blanks, and also added an arbitration clause. He

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then signed the bottom of the agreement and sent it back to Metropolitan. Metropolitan
did not respond. The parties proceeded in accordance with the terms of the draft
agreement and occasionally made reference to the ‘contract’ when dealing with minor
disputes. However, when a significant dispute arose, Brogdan denied that any contract
had been formed between them. Metropolitan sued Brodgan for breach of contract.​
Issue: Was there a binding contract between the parties?​
Held: The court held in favour of Metropolitan. The parties’ conduct established that
there was a contract between them, and Brogdan was in breach of it. In order for a valid
contract to be formed, there must be an offer, acceptance, and consideration. Acceptance
of an offer can be implied through the conduct of the parties, even in the absence of a
formal written acceptance. The conduct of the parties can be sufficient to establish the
existence of a contract.

Upton Rural District Council vs. Powell (1942)

Facts: A fire erupted on the defendant's farm, and believing he was entitled to free services from
the Upton Fire Brigade, he called for their assistance. The Brigade successfully extinguished the
fire. However, it was later revealed that the defendant's farm was not located within Upton's free
service zone, leading to a demand for compensation for the services provided.
Issue: Whether a contract had been created by implication (implied promise), under which it was
entitled to be remunerated for the Upton fire brigade’s services?
Held: The court determined that the defendant actively sought and requested the services of the
Upton Fire Brigade. In response to this request, the Upton Fire Brigade provided the services.
Therefore, the court concluded that the services were delivered under an implied promise to
receive payment for them. Ignorance of law is no excuse.

Section 3 - Communication
Silence as a mode of communication
Can silence amount to communication? No. But in exceptional cases it can be.
This general law has been laid down in the case of Felthouse v Bindley (1862).

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Silence as a mode of communication

The law requires that proposal, acceptance or revocation must be communicated. As per section
3, there must be some act or omission which has the effect of communicating. The general rule
that silence is not a mode of communication was laid down in the case of Felthouse v Bindley
(1862).
Facts: In this case, an uncle offered to buy the horse of his nephew adding that “if I hear no more
about this, I shall consider the horse to be mine”. No answer was returned to this letter but the
nephew told his auctioneer to keep the horse out of sale. The auctioneer sold the horse by
mistake. The Uncle sued his Nephew.
Held: Nephew was not liable as no contract had concluded. In this case a very important law
point was laid down, that is, silence does not amount to communication.
Criticism: That contract depends on the intention of parties and this judgment overlooked the
intention of the Nephew and Uncle. The decision in Felthouse v Bindley has been criticized by
authors and jurists. It has been argued that the conduct of the nephew of instructing his
auctioneer to keep the horse out of sale manifests that there was an intention on the part of the
nephew to be bound to his Uncle. This criticism possesses merit. However, the general law laid
down in this case, i.e., silence is not communication, still holds good.

Section 4 - Communication when complete

Communication of proposal - when proposal comes to acceptor’s knowledge.

Communication of acceptance -
1.​ Instantaneous Rule
In case of instantaneous rule, the parties are inter praesentes. The main test for applying
this rule is to determine whether the communication is instant or not. Since the
communication is instant, the acceptance completes instantly upon receiving it, thereby
concluding the contract. Therefore, there is no chance of revocation of acceptance in case
of instantaneous rule. However, for the contract to conclude, the communication must be
effective.

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For example, if the acceptor speaks his word of acceptance on the phone but A couldnot
hear those due to a network problem, this will not be effective communication. Hence, no
contract will conclude in this case.
Entores Ltd. v Miles Far East Corporation (1955)
Facts: The plaintiff traded from London and telexed an offer to a company in Amsterdam. The
defendant sent his acceptance which was received by the plaintiff in London. The question
before the court was as to the place of contract. It was held that the place of contract in case of
instantaneous rule is the place where the acceptance is received. London was held to be the place
of contract.
The rule laid down in Entores Ltd has been followed in India.

Bhagwan Das v Girdhari Lal (1966 SC)

Facts: The plaintiff made a proposal from Ahmedabad on a STD call. The defendant accepted the
proposal at Khamgaon. The question before the court was about the place of contract. The
plaintiff contended that since the proposal was made from Ahmedabad and also the acceptance
was received at Ahmedabad, the place of contract should be Ahmedanad. The defendant
contended that since the acceptance was spoken from Khamgaon, Khamgaon should be the place
of contract. The court held that mere making of proposal does not form part of cause of action
for damages for breach of contract. It is acceptance which decides whether a contract has been
concluded or not. The court applied the english decision in Entores Ltd. and concluded that the
place of contract is where the acceptance is received by the proposer. Therefore, the place of
contract was held to be Ahmedabad.

Question: A makes a proposal from Delhi to B in Calcutta on the phone on 14th January. B goes
to Mumbai on 15th Jan and makes a phone call to A accepting his proposal. At that time A was
in Shimla. What will be the place of contract?
Answer: Mode of communication falls under instantaneous rule, i.e., through phone and in such
case place of contract is where acceptance is received. Acceptance is received in Shimla. Thus,
the place of contract is Shimla.

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2.​ Non Instantaneous Mode or the Postal Rule

The postal rule was laid down in England in the case of Adams v Lindsell (1818), as per this rule
if the acceptance is sent by post or telegram, the acceptance is effective when the letter is posted
or the telegram handed over for transmission to the offeror.
Section 4 para 2 provides for the completion of communication of acceptance. This para only
talks about the postal rule. The first part of this para provides that the acceptance is binding on
the proposer when the acceptor puts the acceptance into such a course of transmission as to be
beyond the powers of the acceptor. The second part of the para provides that it is binding on the
acceptor when the acceptance comes into the knowledge of the proposer.
This para indicates that this rule favours the offeree. While the proposer is ignorant about the
actions of the offeree, the offeree is fully aware of the position of the acceptance.

Place of Contract
A contract concludes when the proposal is accepted. Therefore, acceptance gives rise to cause
of action. Therefore, the place of contract in postal rule is the place of acceptance.

What will happen in case the acceptance never reaches the proposer?
Contract will still be deemed to be concluded on the date the acceptor sends the acceptance.
If the acceptance never reaches the proposer by the reason of being lost or destroyed or damaged,
the acceptance will still deem to be complete resulting in a concluded contract.
The Indian Contract Act omits to consider the situation of acceptance never arising at all.
Therefore, there will be a concluded contract even if the acceptance never reaches the proposer.

Question: If a person receives a communication letter but does not open the communication
letter, what will be the consequence?
Answer: In such a case, knowledge will be supposed or presumed by law. This is called
constructive notice.

Question: what if the letter of acceptance and revocation reaches at the same time?
Answer: When the communication of either the proposal or acceptance reaches at the same time
when its respective revocation reaches the other party, in such cases, the revocation will prevail.

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The illustration to section 5 specifies that revocation can be “at the moment” of the
communication.

Question: A letter of acceptance misdirected by the acceptors fault may be because of

wrong address, insufficient stamping etc, what will be the consequence?
Answer: B has not put the letter “effectively in course of transmission”. Hence, this is not a valid
acceptance.

Whatsapp/ Emails
In case of emails and messenger normally the postal rule applies. However, where the sender has
the opportunity to verify immediately the proper communication of the message, in such cases
instantaneous rule will apply.

Section 6
Under the English Law, notice of revocation can come from any reliable source.

Dickinson v Dodds (1876)

Facts: Dodds, the offeror, offered to sell certain premises to Dickinson. Dodds promised to keep
the offer open for sometime. Before that time, Dodds sold the property to someone else without
notice to Dickinson. Dickinson came to know about this from his friend. Dickinson still accepted
the offer and sought specific performance. Specific performance was denied as there was no
contract because Dickinson had got notice of revocation of offer.
There is no need for the offeror to give the offeree any formal notice that the offer is withdrawn.
If the offeree becomes aware that the offeror has acted in a way which is inconsistent with the
offer still being open, it is withdrawn.
This case confirms that the offeror can withdraw their offer at any time, even if they have stated
that the offer will remain open for a particular period of time.

Indian Law - The decision in Dickinson v Dodds does not apply in case of Indian Law. Section
6(1) of the ICA categorically states that the notice of revocation must be given by the proposer.

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In the Indian Law, in the above facts, a contract would have been concluded as the notice of
revocation had not come from the proposer.

Consideration - section 2(d) + 25

“Something” - consideration must be real and not illusionary. It must be something which is of
some value in the eyes of law.
Section 2(d) defines consideration. While section 2(d) defines consideration, the requirement of
consideration as an essential element of contract is mentioned in section 25 which renders
agreement without consideration void. Consideration is a quid pro quo (a favour or advantage
granted in return of something) for a promise. The purpose of consideration is to limit the
freedom of individuals so that they make only binding legal promises. It ensures that the parties
enter into a contract after deliberation and not on impulse.
A detriment to the promisee is good consideration even though there is no benefit to the
promisor.
A consideration is always for a promise.

“At the desire of the promiser”

The first requirement of consideration is that it must be at the desire of the promisor. If it is not at
the desire of the promisor, it doesn't result in any consideration.

Combe v Combe (1951)

A husband upon divorce promised his wife a certain sum every year as permanent maintenance.
In reliance upon this promise, the wife forbore to apply in court for maintenance. The husband
failed to make the payments and the wife sued him on the promise. The issue that arose in this
case was whether there was any consideration by the wife to the promise made by the husband. It
was held that there was no consideration merely because there was a detrimental action by the
wife in reliance on the promise but which was neither at the desire of the promiser nor in return
for it.
In the present case, the husband neither expressly nor impliedly requested the wife to forbear
from going to the court. Hence, there was no consideration for the husband’s promise. Her
forbearance was neither intended by the husband nor was it at the husband’s request.

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An act done at the desire of a third party is not valid consideration . The act should have been
done at the desire of the promisor

Durga Prasad v Baldeo (1881 All HC)

The plaintiff built at this own expense certain shops on the order of the collector. The defendant
shopkeepers made a promise to the plaintiff to pay him commission on the articles sold. The
plaintiff’s action to recover the commission was rejected because the plaintiff’s act was not the
result of the defendant’s promise but of the Collector’s order.

Promissory Estoppel
Promissory estoppel is a doctrine based on equity that stops a person from going back on a
promise even if a legal contract does not exist. According to Lord Denning, a man should keep
his words all the more so when the promise is not a bare promise but is made with the intention
that the other party should act upon this.
The doctrine of promissory estoppel is different from doctrine of consideration. A promise in
future creates an estoppel, the principle being that if a promise is made in the expectation that it
would be acted upon and it was in fact acted upon, the party making the promise will not be
allowed to back out of it and the court should insist that the promise so made must be honoured.
The Law Commission in its 108th Report on promissory estoppel suggested adding of section
25A to the ICA. However, this suggestion has not been acted upon.

The essentials to application of the doctrine of promissory estoppel are:

1.​ Promise
2.​ Reliance
3.​ Injury
If a person has relied upon a promise, he should not suffer any injury.

Kedarnath v Gauri Mohammad (1886)

The defendants made a subscription to pay 100/- for the construction of the town hall, which he
later refused. The commissioner sued the defendant for the same.

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The defendant was held liable to pay the promised subscription as on the faith of the promised
subscription, the plaintiff entered into a contract with the contractor for the purpose of building
the town hall at Howrah. The act of the plaintiff (promisee) in entering into contract with the
contractor may be said in this case to have been at the desire of the defendant (promisor) so as to
constitute a consideration for the promise to pay subscription. It will be deemed that the plaintiff
entered into contract with the contractor as per the desire of the defendant even though no actual
consideration was from the defendant to the contractor, such consideration would be deemed.
Therefore, this is a departure from the rule of consideration.

Abdul Aziz v Masum Ali (1914)

The defendant promised rs500 for rebuilding a mosque, was held not liable to pay the
subscription because nothing had been done to carry out the repair and reconstruction and
therefore, there was no consideration for the promisor to pay.

Doraiswami Iyer v Arunachala Ayyar (1935)

In this case, the repair of the temple was already in progress. The promisor promised to make a
subscription of rs125. The promisor later cancelled his subscription. In this case promissory
estoppel did not apply. It was observed that, in this case neither it was pleaded nor there was any
evidence not any request by the promisor to put his name in the subscription list specifically for
temple repairs. It was regarded as a bare promise unsupported by any consideration, hence
unenforceable.

Privity
Who can sue? On whom do the rights and duties fall?
Privity is the connection between parties to a contract. Privity of contract is the principle that
only the parties to a contract have legal rights and obligations.

Of contract - applies in England and India.

Of consideration - applies in England. Not in India.

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Under the ICA, the consideration may proceed from the promisee or any other person. This is
because there is no privity of consideration in the Indian Law.

Stranger to consideration - a person is sometimes a party to the contract but stranger to

consideration. The promisee who doesn't give the consideration himself as the consideration is
given by some other person, is a stranger to consideration.

Dutton v Poole (1688)

The father of the bride was about to sell the timber on his estate so as to provide for a marriage
portion for her. However, he refrained from doing so on the promise of the eldest son to pay the
amount to her. It was held that the daughter could maintain an action against the son on his
promise to the father though she was neither a party to the contract nor had the consideration
moved from her.
Daughter was a stranger to contract and stranger to consideration.
Early exception to doctrine of privity of contract - acknowledging rights for certain third parties
based on family relationships.
The court recognised her as indirect beneficiary, highlighting the familial bond as extending the
consideration from the father to his children.

The above case has been overruled in the below case:

Tweedle v Atkinson (1861)

The respective fathers of Husband and wife agreed that each should pay a sum of money to the
husband, and that the husband should have full power to sue for such sums. After the death of
both the contracting parties, the husband sued the executors on the agreement of the Wife’s
father. The action was not maintainable as the Husband was a stranger to the consideration. This
case overruled the decision in Dutton v Poole (1688). This is the landmark judgment that
provides that in English law there is a privity of contract as well as privity of consideration.

The rule of privity of contract means that a stranger to contract cannot sue for enforcing the
contract.

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This rule has been laid down in Tweedle v Atkinson and finally established in Dunlop Pneumatic
Tyre Co. v Selfridge and co. (1915).
Facts: The plaintiff sold a number of tyres to Dew and Co. with an agreement that Dew and Co.
will not resell below a fixed price. However, Dew and Co. sold the tyres to Selfridge with
agreement to observe the above restrictions and to pay to Dunlop 5 Pounds for each tyre sold at a
price lower than the fixed price. But, Selfridge sold those tyres below that fixed price. The
plaintiff brought an action against Selfridge but the claim of the plaintiff was rejected as he was a
stranger to the contract between Dew and Co. and Selfridge. Only a party to a contract can claim
upon it. Secondly, Dunlop had not given any consideration to Selfridge and therefore there could
be no binding contract between the parties. UK follows privity of consideration. Only parties
who give each other consideration can claim consideration.

There is no provision in the Indian Law either for or against the privity rule.
However, in the case of Khwaja Muhammad v Hussaini Begum (1910), the privy council did
not follow the English law of Privity of contract. It was held that there is nothing in the Indian
Contract Act which prevents recognition of the right of a third party to enforce a contract made
by others, which contains a provision for his benefit.
Facts: Khwaja Muhammad Khan (defendant) entered into a contract on 25th October 1877 with
the father of Husaini Begum (plaintiff) for the marriage of his son Rustam Ali and the plaintiff.
The contract expressed that after the marriage, the defendant would pay rupees 500 per month on
perpetuity basis as kharch-i-padan, out of specific properties mentioned in the contract. The
marriage took place on 2nd November 1877 however both Rustam Ali and Husaini Begum
(plaintiff) were minors due to which plaintiff was welcomed in her matrimonial home in 1883
and the couple lived together till 1893 after which due to various differences plaintiff left her
matrimonial home and started residing at her pre-nuptial home. The defendant (Khwaja)
discontinued the payment of rupees 500 as agreed earlier. The suit was brought by the wife.
Held: It was held that even though she was no party to the contract still she was entitled in equity
to proceed the claim. She became a ‘third person’ in the contract and she gained the status of
beneficiary. She eventually attained the right to sue the appellant and recover the costs from him.

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A person not a party to a contract cannot enforce the terms of the contract unless he is a
beneficiary under the contract or the contract is one of family arrangement.

Beswick v Beswick (1968)

The deceased, being 70 years old and became ill, decided to step back from his business. He
agreed with the defendant to transfer his business’ goodwill and tools to the defendant. In return,
the defendant would employ the deceased as a consultant for the remainder of his life. After his
death, the defendant was to pay the deceased’s wife £5 a week. The wife was not a party to this
contract.
When the man died, the defendant paid the wife one sum of £5 and then refused to make further
payments. The wife sued for specific performance of the agreement. She did this both in her
capacity as executor of the deceased’s estate and in her own right. The wife could not sue in her
own right, but she could sue in her capacity as executor of the deceased’s estate.
This case demonstrates some of the ways the courts tried to avoid the limitations of the privity of
contract rule. In the modern era, the wife would likely be able to sue in her own right under the
Contracts (Rights of Third Parties) Act 1999.

The landmark judgment of the SC in MC Chacko v State Bank of Travancore (1969) supports
the doctrine of privity of contract.
Facts: The Highland bank was indebted to State Bank of Travancore under an overdraft. One M
was a manager of the Highland Bank and his father K, had guaranteed the repayment of the
overdraft. K gifted his properties to the members of his family. The gift deed provided that the
liability, if any, under the guarantee should be met by M either personally or from the share of
property gifted to him. The State Bank of Travancore attempted to hold M liable under the
provision of the deed but he was not held liable.
The deed merely set out an internal arrangement between the donor and members of family
which conferred a right of indemnity upon them against M.C. Chacko and his inherited property.

In the course of time, the courts have introduced a number of exceptions in which the rule of
privity is not applicable.

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1.​ Beneficiaries under trust - Trust refers to something created by a contract for a third
party. While creating trust in favour of a person, the owner of property transfers the
managing rights to the trustee and there are certain obligations imposed upon the trustee. The
party for the benefit of whom this trust is created is called beneficiary. Even though the
beneficiaries are a third party to the contract, they are entitled to enforce the terms of the
contracts.

2.​ Marriage settlements -A third party beneficiary is entitled to enforce a contractual obligation
coupled with a charge on an immovable property. A person entitled to take benefit of the
beneficiary clause in the marriage settlement, partition or other family arrangements. For
example, in Nawab Khwaja Muhammad Khan v. Nawab Hussaini Begum, the plaintiff, as per
marriage settlement had been given Rs.500 monthly as betel leaf expenses in perpetuity out
of the income of certain properties, was held entitled to sue although she was not a party to
the contract.

3.​ Estoppel/ Acknowledgment - Where a party enters into an undertaking to pay a certain sum of
money to a third person and he acknowledges it to that third person, the third person can
enforce it. Example- Ajay asks Mahesh to give ₹5,000 to Uma on his behalf. If in this case,
Mahesh acknowledges it then he is bound to pay the amount to Uma. If he doesn’t pay the
amount then Uma can sue him irrespective of the fact that she is the third party.

4.​ Agency - If an agent enters into a contract with a party on behalf of a principal, then the
principal being a third party can enforce those contracts. The Indian Contract Act on
Privity of Contract defines an Agent as a person who has been formally recruited to
perform and represents the principle in dealings with strangers. The person who employs
an agent or anyone to be represented by one is called the principal.
A appoints B as his agent and asks B to buy a bag of rice from C. Here, the contract is
between B and C, however A can enforce it.

5.​ Assignment - Assignment of contract refers to transfer/ assignment of rights and liabilities
arising from contractual relations to third party. Assignee of benefit can sue upon the
contract, though he is the third party.

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Example- Husband assigns his insurance policy in favour of his wife. As the benefit of
the contract is assigned to her, she has the right to enforce the contract, though she is not
a party to the contract.

6.​ Covenants running with land –The owner of the land is authorized to various duties and
responsibilities provided under a land agreement. A covenant is a pledge written in a
sealed document. When a property is transferred, the new owner receives all of the
advantages associated with the land and is also obligated by the responsibilities imposed
by a land-related agreement, even if he is unfamiliar with the agreement. ​
In the case of Tulk v. Moxhay, ‘D’ possessed a piece of property that he sold to ‘E’ with
the condition that a portion of it be kept as a public park. ‘E’ kept his side of the bargain
and finally sold the land to ‘F’. Despite being aware of the covenant, ‘F’ constructed a
house on the designated site. When ‘D’ found out, he brought a lawsuit against ‘F’.
Despite the fact that ‘F’ was not a party to the contract, the court found him liable for
breaching the covenant.

Executed and Executory Consideration

Executed Consideration - when an act is performed in return for a promise, there will be a right
outstanding on the other party. The party who has performed his promise already will be said to
have executed the consideration. Executed consideration is usually when the promise is
unilateral like in case of general offers.

Executory consideration is when the promises are bilateral and when both the promises are yet
to be performed. For eg- If I enter into a contract with U to sell my watch for rs5000,
considerations are executory, i.e., I am yet to give U my watch and U is yet to give me rs5000.

Consideration can be divided into:

1.​ Past
2.​ Present
3.​ Future

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Executed consideration and past consideration are two different concepts. In case of executed
consideration, the promise and the act constituting the consideration are both integral and
correlated parts of the same transaction. In past consideration, the promise is subsequent to the
act and independent of it. It is merely an act or forbearance given in the past by which a person
has benefited without incurring any legal liability.

In the Indian law, past consideration is a good consideration. However, in English law, past
consideration is no consideration.
However, in English law the rule that past consideration is no consideration is subject to the
following exceptions:
1.​ The past consideration should have been at the request/ desire of promisor (common in
Indian and English law)
2.​ At the time of making such request, there was an intention to compensate for such past
consideration (no such requirement in Indian law)

Section 25 - It need not be adequate

Nudum Pactum ex quo non oritur actio
Any promise made by a person that is not supported by consideration is said to be nudum
pactum, ex quo non oritur actio. “A bare promise without consideration cannot be enforced”.

Section 25 exceptions provide that a promise without consideration can be enforced as a

contract, if the requirement of these exceptions are fulfilled.
(1)​ Rajlukhy Dabee v Bhootnath (1900)
A hindu husband executed a registered document in favour of his wife whereby, after
referring to quarrels and disagreements between them. The husband agreed to pay her
for a separate residence and maintenance and there was no consideration moving from
the wife. It was held in a suit by the wife that the agreement was void as being without
consideration. This element of natural lack and affection was missing. So, agreement
without consideration is not valid.

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(2)​ Promise only to compensate

Section 25(2) covers cases where a person without the knowledge of the promisor or
otherwise than at his request, does the latter some service and the promiser undertakes
to compensate him for that. Such a promise does not need consideration to support it.
25(2) is not the same as past consideration. This is because the past consideration
should have been “at the desire of the promisor”. However, the act done under section
25(2) is a voluntary act and a voluntary act cannot be treated as a consideration. Even
otherwise, if the legislature intended section 25(2) to be a case of past consideration,
there would have been no need to enact 25(2), as past consideration is already a good
consideration as per 2(d).

(3)​ Promise to pay a time barred debt

1.​ It must refer to a debt which the creditor might have enforced but could not because of
expiry of the period of limitation.
2.​ There must be a distinct/ clear promise to pay wholly or in part such debt
3.​ The promise must be in writing signed by the person or by his duly appointed agent
The rationale behind this is that the debt is not extinguished but only the remedy is barred by
passage of time.

Agreement without consideration is void. But this rule’s exception are:

●​ Section 25
Other exceptions:
●​ Gifts (explanation 1 to section 25)
●​ Section 185 ICA- agency - no consideration is needed to create agency.
●​ Gratuitous bailment - a type of bailment in which the bailee receives no compensation.
In the above cases, agreement without consideration is enforceable.

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Section 10
●​ Two Or More Parties To The Contract
●​ All Parties Be Major (Attained Majority Of Age) And Not Be Minor (Mohori Bibi v.
Dharmodas Ghosh)
●​ All Parties Must Be Of Sound Mind (And neither Insane Nor Intoxicated) (Chacko &
Ors. v. Mahadevan)
●​ Intention To Enter Into A Contract (Balfour v. Balfour Case)
●​ Offer & Acceptance (Between Promisor And Promisee)
●​ Lawful Object (Kearley v. Thomson)
●​ Lawful Consideration
●​ Not Prohibited Or Expressly Declared To Be Void By Any Law For The Time Being In
Force In India
●​ Capable of being performed/ possibility of performance
●​ Should Be In Writing, Registered Wherever Necessary (As Per Indian Registration
Act,1908 And Indian Stamp Act 1899 / Maharashtra Stamp Act 1958)
Remember: You Also Cannot Enter Into Agreements With An Alien Enemy: A National
Of A Country Which Is At War With India

Section 23
Section 10 states, for an agreement to become a contract, the consideration and object both
should be lawful/ legal. This section has to be read with section 23 and section 24 of the Indian
Contract Act.

Ex Turpi Causa Non Oritur Actio - from a dishonourable cause an action does not arise.

According to Sec. 23, the consideration or object of an agreement are lawful unless:
1. Forbidden by law – When something is forbidden by law an agreement to do that is unlawful,
viz. sale of liquor without licence, an agreement to pay money if a person commits a crime or
tort, etc.
However, merely because a person does not observe statutory requirements does not mean that
the agreement is void, especially when the intention of the legislature is to regulate an act by

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prescribing certain terms and conditions. In other words, the object of the statute is not to forbid
certain transactions, but only impose a penalty. In, Abdul Jabbar v. Abdul Muthalif (AIR 1983 P
& H 180), where a rice mill had been constructed with monies remitted by the plaintiff in
contravention of the FERA, it was held that although the remittances were illegal, the
construction of the rice mill by itself did not involve the execution of any unlawful object, and
thus the plaintiff was entitled to the relief sought by him i.e. an injunction to restrain the
defendants from interfering with his possession of rice mill.

2. Defeats the provisions of any law –sometimes the object of, or the consideration for, an
agreement is such that, though not directly forbidden by law, it would, if permitted, defeat the
provisions of any law. Thus, according to the Mohammedan law it is not competent to parties
contracting a marriage to enter into a separation deed by which the husband covenanted that his
wife might live with her parents.

3. Fraudulent purpose- An agreement made for a fraudulent purpose is illegal, viz. an agreement
to defraud creditors, or to defraud revenue authorities, or investors in a company. But if two
persons agree not to compete with each other, and one of them in consideration for the other
person not competing in the submission of tenders agrees to pay a certain sum of money, the
agreement does not aim at defrauding anybody, and the same is enforceable (Jai Ram v. Kanha
Ram AIR 1963 HP 3).
However, if the object of an agreement is to manage to procure a contract for one party which
would otherwise be refused, the object is fraudulent.

4. Injurious to person or property – An agreement between two persons to injure the person or
property of another is unlawful, viz, an agreement to commit a crime or civil wrong, for
example, to assault or beat a person or to publish a libel against him. If the borrower repayment,
and in default agrees to pay an exorbitant rate of interest, the agreement was held to amount to
slavery and thus opposed to public policy and, therefore, void (Ram Sarup v. Bansi Mandar
(1915) 42 Cal 742).

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5. Immoral – the law does not allow an agreement tainted with immorality to be enforced. What
is immoral depends upon the standards of morality prevailing at a particular time and as
approved by the courts. The Plaintiff advanced loan to the defendant, a married women, so as to
enable her to divorce her husband is immoral [Bai Vijli v, Namsa Nagar (1885) 10 Bom. 152]

6. Opposed to public policy – public principle is a policy of judicial interpretation founded on the
current needs of the community. Public policy means the policy of the law at a stated time. It
broadly means public good or public interest. An act which is injurious to the society is against
public policy. The concept of ‘freedom of contract’ (laissez faire) has been considered to be of
great significance and, therefore, if the courts are given freedom to interfere with contracts on
their own notions of public policy, this may be unjust.
In, Central Inland Water Transport Corpn. Ltd. v. Brojo Nath (AIR 1986 SC 1571), it was held
that an unfair and unreasonable contract entered into between parties unequal in bargaining
power is opposed to public policy. Such contracts, which are rarely induced by undue influence
as defined by Sec.16 contract Act, and which affect a large no. of persons, if they are
unconscionable, unfair and unreasonable, are injurious to the public interest.

In, Papaiah v. State of Karnataka (AIR 1997 SC 2670), the court held that where land is assigned
to a member of the depressed classes, its assignment to a third person is against public policy,
and the purchaser does not get any right to such land.

Section 24
According to section 24, if any part of a single consideration for one or more objects, or any one
or any part of one of several considerations for a single object, is unlawful, the agreement is
void. This means that if a part of the consideration/ object which is unlawful can be separated
from the other lawful part the court will enforce only the lawful part.
The Blue Pencil Doctrine allows a court to selectively strike out or edit specific provisions of a
contract that are deemed illegal, unenforceable or contrary to public policy, while leaving the rest
of the contract intact and enforceable. This doctrine is based on the idea of “severability,”
meaning that if the offending portions of the contract can be removed without affecting the
overall purpose or meaning of the contract, the remainder can still be enforced. The term “blue

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pencil” originates from the practice of using a blue pencil to edit or censor written documents.
The Blue Pencil Doctrine is applied in various jurisdictions to ensure fairness and uphold the
parties’ intentions in contracts, while also maintaining legal standards and public policy
considerations.
If no such severance is possible, the whole of the agreement is void. Thus, partial illegality may
avoid the whole agreement.

Summary -
Section 10 - Agreement should have lawful object and lawful consideration.
Section 23 - If object/ consideration is unlawful, agreement is void.
Section 24 - whole agreement will not be void. If the lawful part is separable, the lawful part will
be valid (Blue Pencil Rule).
​
Section 11
The purpose of section 11 is to protect those whose mental powers are underdeveloped or
undeveloped by preventing them from doing themselves an injury by their legal declarations. It
is the inherent power and authority of a state to provide protection to the person and property
of persons such as minor, insane and other incompetent persons.

Unsound Mind:
Individual who lacks the mental capacity to understand the consequences of their actions.

In Chacko and Ors. V. Mahadevan [AIR 2007 SC 2967]

The appellant Chacko (‘C’) owned 20 cents of land. In 1982, he sold 1 cent of this land for
₹18000. Later in 1983, he sold 3 cents of land to the defendant Mahadevan (‘M’) for a meagre
amount of ₹1000. Then this sale was contended by ‘C’ and his wife, that it was null and void on
the grounds of it being fraud, as the defendant ‘M’ had got ‘C’ under the influence of alcohol
when the sale deed was executed. Another fact to notice was that 1 month prior to this sale ‘C’
was admitted to a mental hospital for 3 days for Alcoholic Psychosis.
Was the sale deed vitiated owing to the unsoundness of mind as claimed by the appellant?

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The Supreme court held the sale deed was null and void on the grounds that ‘C’ was unsound
at the time of execution of the deed.

Position of minor
Under ICA, before 1903 contract with a minor was voidable. After 1903, after Mohri Bibi
judgment, it was held that agreement with minor is void.
Under English Law, contract with a minor (infant) is voidable.

As per the Indian Majority Act, 1875, the age of majority is 18 years.

Mohri Bibi V Dharmodas (1903)

Facts: Plaintiff Dharmodas while he was a minor mortgaged his property in favour of defendant
Brahmodutt, a money lender. Before the execution of the mortgage a notice was issued on
behalf of the mother of Dharmodas to Brhamodutt about the fact of the minority of
Dharmodas. Despite this notice, Brahmodutt got a declaration signed by Dharmodas that he
was a major and then advanced to Dharmodas some part of the money agreed. Mortgage deed
was executed. Dharmodas filed a suit for cancellation of mortgage, it being void on the ground
of his minority. Brahmodut contended that,
1.​ Dharmodas was of full age
2.​ Darmodas was estopped from pleading minority
3.​ Even if Dharmodas was minor, the contract was voidable and not void.
4.​ If the mortgage deed is cancelled, the court should order repayment of money
advanced.
Court rejected all the points and held that the agreement with minors are void ab initio (void
from the beginning) because the minor is incapable of entering into a contract as per section 11.
The court also held that Section 64 and 65 are not applicable on minors.

The 13th Law Commission in its report did not agree with the Mohri Bibi Judgment as far as the
decision related to applicability of section 64 and 65 of ICA to minors. This would result in unjust

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enrichment of minors. Unjust enrichment means no one should be allowed to enrich himself
unjustly at the cost of others. If the minor is not asked to return the benefit, he will enrich
unjustly at the cost of others. The Law Commission opined that section 65 should be made
applicable on minors as well. However, this recommendation of the Law Commission was not
acted upon.
Section 33(2)(b) of the Specific Relief Act, 1963 fills this lacuna. As per this section, a minor may
be directed to restore the benefit he has received.

Benefit = money and property in Indian law.

In English Law money cannot be restored in the case of minors. Only property can be restored
subject to conditions below:
1.​ Property should be traceable
2.​ Property should be in his possession

Leslie v Sheill (1914)

In this case Lord Sumner said, “restitution stops where repayment begins.”
In this case an infant deceived some moneylender about his age and obtained a loan and then
he spent the money that was loaned to him. Minor had falsely misrepresented his age, causing
the person to believe that he is a major. It was held that if the debt is repaid, it is not
restitution, but it is enforcement of the loan contract. Hence, in such cases the minor cannot be
compelled to pay the money.

From 1906, Indian Courts started allowing restitution where minor committed fraud. The Lahore
High Court in Khan Gul V Lakha Singh (1928) deserves a special mention in this topic. It was held
that the power to give equitable relief was more extensive in India than in England and to order
monetary compensation in cases where a minor has misrepresented his age.

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The law commission in its 13th report supports the judgment in Khan Gul v Lakha Singh because
it appears to be more in consonance with the principles of equity and justice.
Section 33(2)(b) of SRA, 1963, is enacted to give effect to the decision in Khan Gul’s Case.

Raj Rani v. Prem Adib (1949 Bom HC)

A film producer and a minor girl entered into a contract for a film in which the girl was going to
act. When the producer failed to keep his promise the minor sued him. But, the Bombay High
Court held that the agreement was void ab initio. Thus, the producer was not liable to pay
compensation.

Nawab Saqid Ali Khan v Jai Kishori (1928 PC)

No estoppel applies against a minor.
The policy of the law of contracts is to protect persons below age from any contractual liability
and there cannot be any estoppel against the statute, thus, a minor cannot be estopped to claim
the defence of minority in any such suit.

In the case of The Great American Insurance Co. Ltd. vs. Madanlal Sonulal (1935), the guardian
(Minor’s sister’s husband) entered into a contract of fire insurance with the insurance company
on behalf of the minor to protect his property from fire. On the day when the insurance contract
came into effect, the insured property got damaged. The minor went to the court to claim
compensation for it. But the insurance company rejected his claim by saying that a contract with
a minor is null and void and hence, he has no claim. The Bombay High Court delivered the
judgement that the insurer must pay damages because this contract was beneficial to a minor and
carries a binding value.

Ratification:
Can a minor ratify an agreement upon attaining majority?

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Ratification means relating back. Since an agreement with incompetent person is void ab initio,
there can be no question of ratifying it. Ratification has a retrospective effect so it will validate a
void agreement in this case. Therefore, no ratification is allowed in case of minors.

Transfer in favour of minor: There is nothing in the Contract Act that prevents a minor from
being a promisee or transferee and thus, the minor is capable of accepting a benefit and not
repaying it back (unless if it’s a quasi-contract as under S.68).

Contracts by guardians: If a guardian or parent enters into a contract on behalf of the minor, it
would be a valid contract.
The guardian should be competent to contract (not minor, insane, pardanashin, alien enemy,
etc.).
The guardian should give free consent.
The contract should be for the benefit of the minor.
The contract should be for supplying essential necessities to the minor.

Joint Liability of minor with major: If a minor undertakes liability jointly with an adult,
immunity of the minor cannot absolve the adult promisor from liability.

Exceptions to ‘Agreement with minors are void of initio’:

1.​ Section 68 ICA
2.​ A minor may be an agent
3.​ Section 7 of TPA - every person competent to contract and entitled to transferable
property is competent to transfer such property but it is not provided anywhere in the
Act that a person not competent to a contract is incapable of being a transferee of the
property.
4.​ Section 30 Indian Partnership Act - a minor cannot be a partner in a firm but can be
admitted to the benefits of partnership.

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5.​ Section 26 NI Act - A minor may draw, indorse, deliver and negotiate such instrument so
as to bind all parties except himself.

Persons Disqualified by Law

The third type of incompetent persons, as per Sec.11, are those who are “disqualified from
contracting by any law to which they are subject”. Thus, alien enemies, foreign sovereigns and
ambassadors, convicts, married women (with respect to their husband’s properties in certain
communities), insolvent in certain cases, and joint–stock companies and corporations
incorporated under a Special Act.

Section 13
Consent
Consent - Same thing in the same sense. It is also called as consensus ad idem.
Consent is defined under section 13 of ICA. it means when two or more persons agree upon the
‘same thing in the same sense’. This phrase originally came from the New York Draft Code. This
was used by Lord Hannen in Raffles v Wichelhaus (1864). The Indian definition in section 13 is
based on this. This means that there must be a consensus ad idem between the parties, i.e.,
meeting of minds. When there is no consent, there cannot be any contract.

Raffles v. Wichelhaus (1864) 2 H&C 906

Facts: Plaintiff agreed to sell Defendant 125 bales of Surat cotton to arrive via the ship called the
Peerless from Bombay. Defendant believed the shipment would arrive on the Peerless that
arrived from Bombay in October. However, Plaintiff was unaware of such a ship, as Plaintiff
intended that the cotton would arrive via the Peerless from Bombay in December. When the
December Peerless arrived with the cotton, Plaintiff was ready and willing to deliver the cotton
to Defendant, but Defendant refused to accept the cotton or pay Plaintiff for it.
Issue: Is a contract enforceable where the parties are in disagreement as to the terms dictating
shipment and delivery?

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Held: No. The court found it impossible to hold the Defendant liable for breach, when his
performance was rendered, according to his understanding of the contractual terms. Looking at
the rule of law, as illustrated above, we can see how it was applied to the facts of this case:
(1) The contractual terms were ambiguous regarding the ship, and the court first attempted to
apply generally accepted terms; when that failed, because there was no generally accepted term
for shipping vehicle,
2) The court found that there was no meeting of the minds as to the ship, and invalidated the
contract.
3) This was a mutual mistake case because both parties were mistaken as to the thing agreed
upon, and neither could be held to the terms of the contract. Since there were two ships called the
Peerless, the contract contains a latent ambiguity. This being so renders the contract non binding.
Ambiguous terms that are not material to the agreement will not render the contract void.
(Ambiguous terms that are material to the agreement will render a contract void, like in the
above mentioned case).
If there is no consensus ad idem or free consent by one or both parties, the contract is not a valid
and enforceable one.

Section 14
Free consent
Coercion, undue influence, fraud, misrepresentation - voidable contract
Mistake - void agreement

When there is consent, but it is not free, the contract is a voidable contract (except in case of
mistake). Free consent is defined in section 14. Consent is said to be free consent when it is not
caused by coercion, undue influence, fraud, misrepresentation, or mistake.
A general averment that consent was not freely obtained is not enough and it is necessary to
prove one of the vitiating elements enumerated under section 14.

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COERCION (SEC.15)
According to section 15, consent is said to be caused by coercion when it is obtained by
pressure exerted by either of the following techniques.
1.​ Committing or threatening to commit any act forbidden by the IPC, or

2.​ Unlawfully detaining or threatening to detain any property.

An agreement to which the consent is caused by coercion is voidable at the option of the party
whose consent was so caused.

Chikham Amiraju v. Chikham Seshamma (1912) 16 IC 344

Facts: A man by threat of suicide, induced his wife and son to execute a release in favour of his
brother in respect of certain properties.
Held: that the threat of suicide amounted to coercion within section 15.

The definition of coercion under Indian Law is also a restrictive definition as it only includes the
acts forbidden by IPC. The Law Commission in its 13th report suggested to include acts
forbidden under any law under the definition of coercion. However, this suggestion was not
acted upon.

Under English law, coercion is called duress.

Coercion under the Indian Law is wider than duress under English Law. Because,
●​ Coercion also includes unlawfully detaining the property, however, duress does not
include unlawful detaining of property.
●​ In Duress only the party to the contract should perform the act but, in Coercion even a
third party can perform the act.
Coercion may move & may be directed towards anyone.

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-​ Coercion may move from one person and may move to any person other than
the contracting party to the contract. It may even move to the close relations of
the contracting party.
E.g. “A” kidnaps “B’s” Son in order to obtain the consent of “B” to contract. Even
though “B’s” son is not a party to contract, the coercion has moved to him.

-​ Coercion may be directed towards any person. In this case it is not necessary that
the coercion should always be performed by the parties to contract, sometimes it
can also be exercised by a third party to contract. E.g. “A” hired “B” to kidnap
“C’s” son in order to get consent from “C” to contract.

Examples of unlawfully detaining property:

1.​ Upon the services of the agent being terminated, he detains some accounts books and
makes the principal sign a contract. This is coercion.
2.​ A mortgagee threatening the mortgagor to detain his property if some extra interest is
not paid. This is coercion.

●​ Mere commercial pressure does not amount to coercion.

●​ Compulsion by law is not coercion.
Andhra Sugars Ltd v State of Andhra Pradesh (1968 SC)
The mere fact that a contract has to be entered in conformity with the restrictions
imposed by law, does not cause any effect on the element of free consent in the
contract. Despite such compulsion, the agreement is considered to be freely made.

Threat of strike - not coercion because it is not forbidden by IPC.

Threat to sue - Threat to prosecute a person or file suit against a person is not coercion.

Effects of coercion: When coercion is employed, then the contract is voidable at the option of
the aggrieved party. In this case any benefit received by the either parties to the contract must

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be restored back. If the aggrieved party has suffered loss, he can recover the loss from the other
party to contract.

Section 16
Undue Influence
A party to a transaction even though consenting to it, may not give a free consent because he is
exposed to such influence from the other party to deprive him of the free use of his judgment.
In such a case, the transaction will be set aside.
Undue influence is said to be a subtle species of fraud whereby mastery is obtained over the
mind of the victim by insidious means.

(1)​ Section 16(1) defines undue influence. The essential ingredients for undue influence are:
○​ A person must be in a position to dominate the will of another and,
○​ He must use that position for unfair advantage
In the case of Ladli Prasad v Karnal Distillery (1962 SC), it was held that both the above
ingredients must be established to prove undue influence.

●​ ‘Relationship’ - the word ‘relationship’ is used in a very wide sense in section 16.
The word relationship in section 16 is not only confined to the relations by blood,
marriage, adoption etc, but any relation indicating superiority of one person over
the other can fall in section 16. For eg, Dr-patient, lawyer-client,
employer-employee, officer-his subordinate, trustee- beneficiary, creditor-debtor
etc.
●​ ‘Unfair advantage’- the expression ‘unfair advantage’ is used as meaning an
advantage obtained by unrighteous means.

(2)​ Section 16(2) is not a presumption of undue influence. It only provides certain cases
where it will be presumed that the person was in the position to dominate the will of
the another.

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○​ Fiduciary relation - arises between parties when one of them stands in such a
position of trust to another that the latter naturally reposes all his confidence in
the former from which an influence may grow out. Eg- parent- child,
lawyer-client, doctor-patient, teacher-student, religious guru- his follower.

In, Mannu Singh v. Umadat Pandey (1890) 12 All 523, where spiritual adviser
(guru) induced the plaintiff, his devotee, to gift to him the whole of his property to
secure benefits to his soul in the next world, the consent is said to be obtained by
undue influence. Section 19-A of the Act, declares that when consent to an
agreement is caused by undue influence, the agreement is a contract voidable at
the option of the party whose consent was so caused.

(3)​ Subsection (3) does not lay down any rule of law but raises a presumption of undue
influence where the transaction appears to be unconscionable. Unconscionable means
something that is impossible to believe or something that shocks the conscience. This
presumption of undue influence will arise only when both the requirements of 16(3) are
fulfilled, i.e.,
●​ Person in a position to dominate the will
●​ Unconscionable transaction
(If the transaction is reasonable, presumption will not be raised).

Adv. Arushi Chauhan (2024)